Our Financial Deepening Impact On Economic Growth

With China’s economic development and market reform improving, the financehas become the area that is incompletely marketed and attracts the most attention.China’s promotion of the marketization reform calls for deepening financial reform.For decades, China’s financial reform has obtained certain achievements. Financialdeepening degree is increasing. Indicators of the economic monetization andFinancial Interrelations Ratio are increasing. Financial institutions scale expendsunceasingly, and more created financial products emerge. Securities market isdeveloping rapidly. The procession of marketization of interest rate and exchange ratehas been speeded up. The paper studies on the financial-deepening theory and China’sprocess of financial deepening and analyzes the mechanism of action of financialdeepening from credit deepening view, and measures this mechanism with new FIR,using the Solow model to estimate the social capital. The paper analyzes the influenceof financial deepening to economic growth on empirical analysis. With the statisticalmethod, this could provide an evidence for the combination of the financial deepeningtheory and the practical financial operation. From the analysis we can find thatfinancial development and economic growth can do promote each other. The first stepof financial deepening is credit deepening that can play a role on integration ofresources and improving combination of factors of production. That can promotesocial productivity. Based on the results of theoretical and empirical research, thepaper provides a series of suggestions that China should deepen financial. The paperhopes that these suggestions can help our financial and economic development.Based on the existing research and the fundamental theories in economics andfinance, the paper is divided into five chapters:Chapter one analyzes the financial development and its practice in China,proposes the researching background and significance: China’s economic growthneeds of the corresponding financial deepening. Financial deepening reform in our country needs summary and suggestions. The research method taken: it seeks tocombine the vertical historical summary with transversal comparisons, qualitativeanalysis with quantitative analysis, empirical research method with normative method.The main content of chapter also includes literature review of financial deepeningtheory and the innovation and deficiency of this paper.Chapter two starts with China’s financial reform, and then defines the logicorientation of financial deepening which is a process. On the analysis of the financialdeepening in our country should be from two aspects: using traditional financialdeepening index to analysis the situations; the influence of financial deepening toeconomic growth.Chapter three has a research on the influence of financial deepening to economicgrowth theory, and reviews the traditional theory of financial deepening and economicgrowth model. It studies the theory of financial deepening and economic growth inChina from credit deepening view: the key factor of economic growth is theoptimization of resources combination. Credit tools have better effect than traditionalsavings and investment to the allocation of resources. Financial deepening promoteseconomic growth by improving credit quality and credit expansion.Chapter four tests the interaction of financial deepening and economic onempirical analysis. We select FIR as financial deepening index. The mechanism ofusing financial assets to measure financial deepening that is explained from creditdeepening viewpoint. Solow model is taken to estimate social capital. This paperdefines FIR as financial assets/social capital. We use this FIR to analyze thedevelopment of financial and economic in our country, and use the econometricmodel such as ADF test, Granger causality test to get the conclusion that financialdevelopment and economic growth promote each other.Chapter five summarizes the main content and points of view of this paper.Based on the results of theoretical and empirical research, the article provided a seriesof suggestions on China’s financial deepening.